CSL shares: 'Healthy growth at a reasonable price'

Bell Potter thinks that investors should be buying this top stock before it's too late.

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CSL Ltd (ASX: CSL) shares could be a great option for growth investors right now.

That's what one leading broker is saying, describing the biotherapeutics giant as representing "healthy growth at a reasonable price."

What is the broker saying about CSL shares?

According to a note out of Bell Potter, its analysts believe that the relative underperformance of CSL shares since 2020 has created an attractive buying opportunity for investors.

This is because it believes CSL has now broken through its COVID headwinds and is about to enter a period of strong and sustainable growth. It said:

CSL presents an attractive buying opportunity. CSL has been in a holding pattern since 2020, and for good reason. COVID hit the business with higher collection costs for plasma, depressing margins. We anticipate the start of a margin recovery phase for CSL, driving above-market earnings growth over the next few years.

Despite the above, the broker highlights that its shares are still trading on a lower than normal price to earnings (PE) ratio and at a discount to peers Cochlear Ltd (ASX: COH) and Fisher & Paykel Healthcare (ASX: FPH) on growth-adjusted multiples. Bell Potter explains:

CSL trades at a 12-month forward PE of ~28x, representing a discount to its 10-year average of ~31x and a substantial discount to its 5 year average of ~35x. With consensus expecting mid-teen earnings growth over the next few years, CSL trades on a PEG ratio of 1.7x, which looks attractive vs large cap peers COH and FPH that trade on PEG ratios of 3.7x and 2.5x respectively. Given the company's proven quality and growth prospects, we believe significant upside remains.

More reasons to be positive

Another reason to be positive according to the broker is CSL's significant investment in research and development (R&D) each year. It sees scope for its R&D to underpin stronger than expected earnings growth. It adds:

CSL's annual investment of US$1.3 billion to US$1.4 billion in R&D fuels a robust pipeline of new products, solidifying its position as a market leader in innovation. Successful launches of these products can drive earnings growth, which is not fully reflected in consensus.

Finally, Bell Potter also highlights that the company's margins could be better than many expect in the near future. It feels this could also force consensus earnings upgrades. The broker adds:

We believe CSL has the potential to improve margins faster than anticipated, suggesting the next few years could be marked by earnings upgrades.

In light of the above, Bell Potter thinks that now is the time to snap up CSL shares for the long term.

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Cochlear. The Motley Fool Australia has recommended CSL and Cochlear. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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